Analysis of International Shipping: Johnson Ltd. Case Study

This case study examines the international shipping operations of Johnson Ltd., a UK-based company exporting gardening tools to Agro Ltd. in the United States. It delves into the export-import scenario, highlighting relevant laws and regulations such as the Sea Freight Documentation Law, the Convention on Limitation of Liability for Maritime Claims, and the International Convention for the Prevention of Pollution. The study emphasizes crucial documents like the Bill of Lading, Packaging List, Commercial Invoice, Certificate of Origin, and Letter of Credit. It further presents a detailed shipping checklist covering preparing, sending, and destination processes. The analysis includes an evaluation of financial institutions for insurance and letters of credit, along with a comparison of various shipping options and carriers to ensure efficient and secure international trade. The case study provides insights into the complexities and best practices of international shipping.

International Shipping Case
Study
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Contents
INTRODUCTION...........................................................................................................................3
TASK...............................................................................................................................................3
Export-import Scenario:..............................................................................................................3
Relevant laws, regulations and key documents:..........................................................................3
Shipping checklist of Johnson Ltd...............................................................................................6
Evaluation of different financial institutions for insurance and letter of credit:..........................7
Evaluation of different shipping options and carriers:................................................................8
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................10
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INTRODUCTION
In the following project report, an attempt has been made to analyse the case study of the
shipping process of Johnson Ltd, a company which deals in production of gardening tools and
has its headquarters in London, United Kingdom. The company majorly exports to United States
to a company named Agro Ltd. based out of New York. In the following case study, all the legal
formalities are being discussed along with an evaluation of important documents required
essential for shipping. At last the report aims to evaluate different carrier companies and
financial institu
TASK
Export-import Scenario:
Globalisation and internationalisation of business organisations has facilitated the
expansion of trade beyond the national boundaries and every business organisation aims to
increase its business operations to other countries all over the world. With such dominance and
popularity of international business, passage and shipping of goods and products over the
national boundaries has gained a new dimension and angle. Johnson Ltd. is an organisation
which was founded in the year 2008 and the company has its headquarters in London, United
Kingdom. The company deals with the production and manufacturing of gardening tools which
are designed with a completely different technology and innovation. Over the last few years, the
company gained a great popularity in the local UK markets and the profitability and market share
also improved significantly (Xu, 2016). The management of the company decided to adopt a
business growth strategy which will help the company in expanding its operations beyond the
national boundaries. An extensive research of the business environment by the management of
the company resulted in an identification of the business opportunity of shipping the products
manufactured by the company to another importing company by the name of Agro Ltd. which
had its headquarters in New York, United States. Here is a brief description of the entire shipping
process followed by the company:
Relevant laws, regulations and key documents:
Governing laws:
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Shipping good and products by various companies by the sea with the permission of
government is subject to many rules and regulations which are described by the government.
Some of the laws and rules being followed by the Johnson Ltd. are:
Sea Freight Documentation Law: As per the provisions of this law, an exporter is required
to ensure that the consignment being exported is accompanied by either a Bill of lading or a
seaway bill. These are the documents which help in easy identification of who the owner of the
consignment is and terms of contract (Svensson, 2014). These provision are being complied by
the management of Johnson Ltd. to ensure mitigation of risk and improvement of efficiency in
terms of shipping of products. An insurance of the goods is also mandatory before the
consignment is shipped so that there is a mitigation of the loss which could probably happen
during the freight. These are the general laws which govern the shipping process.
The Convention on Limitation of Liability for Maritime Claims, 1976: This act lays down
the rules and guidelines for fixation of liability in business situations of shipping claims and the
provisions under this law are being duly followed by the Johnson Ltd. and its management to
ensure no legal obligation and lawsuits.
The International Convention for the Prevention of Pollution (MARPOL), 1973: This act
along with its provisions modified in the year 1978 and 1997 govern the pollution level of the
marine environment by the ships. This law is being followed by the company to ensure that the
level of pollution doesn’t exceed the permissible limits described by the government.
Specific Documents Required:
Along with the laws, some of the most important documents which are mandatory in the
shipping process are being discussed below. The management of the Johnson Ltd. makes sure
that before taking up any shipping order, it ensures proper documentation related to smooth
processing of that order.
Bill of Lading: Bill of lading is the most important document for any shipping process.
This document acts as a contract between the shipping company and the exporter or the owner of
the cargo. It is a document which acknowledges the receipt of the cargo by the carrier company
for further shipment on the onboard vessels (Norbury, 2018). Both the information of the
exporter and the importer needs to be clearly mentioned on the bill of lading since it acts as a
proof of the ownership of the goods which are beings shipped. After the final arrival of the
shipment at the destination, the bill of lading acts as a shipment receipt upon presentation of
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which, the cargo is released. The management of Johnson Ltd. ensures that the proper
documentation is done for the bill of lading and the information related to the importer i.e. Agro
Ltd is also clearly mentioned on the document.
Packaging list: Packaging list, just like the bill of lading, is a very important and
mandatory document in the shipping of products and cargo via ocean freight. The packaging list
prepared by the Johnson Ltd. is a document which contains even the smallest and tiniest of the
information related to the goods which are being exported such as the weight of the goods,
volume of the goods, value of each individual box as well the complete cargo etcetera. It is a
document which informs various parties about the goods which are being exported without
having to physically open each box and check the consignment. During the event of inspection
by custom department, packaging list is an important document which makes the overall
inspection of the consignment a much easier and less time-consuming process.
Commercial invoice: Every transaction which involves trade between two different
countries and involves importing/exporting of goods should necessarily come with a document
which acts as a proof of sale known as commercial invoice (McKenna, Bruns and Parochelli,
2019). It is definitely one of the most important document in the shipping process and contains a
detailed information about the various parties which are involved in the transaction, the agreed
selling price, bank information, shipping lines etcetera. It acts as a standard involve for ocean
freight and has legal bounding. Though, on the surface, packaging list and commercial invoice
may seem similar but both the documents serve very different purposes and needs to be
published individually.
Certificate of origin: This is also among the important documents which needs to be
prepared by the management of Johnson ltd. Certificate of origin is a document which basically
acts as a declaration of the exporter that the goods or products which are being shipped are
produced, manufactured and exported in a different country and this document needs to be
signed by the ministry of commerce that country. It helps in identification of the country where
the shipment is coming from and accordingly, import duties and taxes are collected on the
consignment. It also helps in determining whether the taxes are exempted due to some special
agreement between the importing and the exporting country.
Letter of credit: The process of shipping goods to a different country with the help of
ocean freight is a very long process and takes several days before the whole process is
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completed. It makes it difficult to determine the stage where the payment for the goods should be
made. Letter of credit is a document which binds both the seller and the buyer of payment
agreement for the shipment process (Lorenzon, 2014). It is considered as one of the most safest
alternative of payment in case of ocean freights. A list of terms and conditions prepared by the
importer have to be agreed by both the parties before commencing the process. The seller needs
to verify with his bank that the proper shipment as per the exact terms and conditions of the
contract has been sent by the exporter and then he gets the payment from the bank. It is the most
important document which ensures smooth payment in the whole process of international trade.
These are the most important documents which are mandatory for the organisation which
deals in exporting of goods and products beyond the national boundaries with the help of ocean
freight. A proper preparation of these documents by the management of Johnson Ltd. helps the
company to mitigate the risks associated with shipping and increase the profitability.
Shipping checklist of Johnson Ltd.
The management of Johnson Ltd. has prepared a checklist for shipping which highlights
the key functions and tasks which are required for effectively carrying out the whole process of
shipping and ensuring that the goods are reaching their destination safely and accurately. The
shipping checklist of the company consists of three different segments according to the different
stages of the shipping process which are: Preparing Shipment, Sending Shipment and
Destination process (Jensen, 2017). The major tasks and responsibilities in the each of the
process are predetermined and arranged in a form of checklist so that no important thing is
missed out in the whole process. Here is a sample checklist for the company prepared by the
management:
Preparing Shipment:
o Checking all the forms and documents which are required with respect to various
provisions of the law.
o Listing each product and commodity which is being shipped along with a detailed
description of each product as well.
o Describing the content along with declaration of the value of products or cargo.
o Writing contact information clearly on the boxes in block letters.
o Ensuring that the shipment is being packed and prepared very securely to ensure safe
freight.
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o Purchasing the insurance for items which are of high value and fragile nature.
o Evaluation of the various shipping methods and choosing the best alternative,
o Researching about the alternative method of payments.
o Evaluation of different shipping companies and charges.
o Making a booking with the shipping company or carrier.
Sending Shipment:
o Clearing the shipment through the customs office department.
o Attaching a detailed list of the items in the shipment.
o Attaching a list of value of the items which are being shipped.
o Ensuring that the boxes and containers are properly labelled and tagged.
o Ensuring that the documents which are essential for shipping are matching with the
shipping labels to clearly provide information about every aspect of the freight.
Destination:
o Obtaining a copy of the seaway bill by contacting the customs department.
o Ensuring verification with the bank of delivery of shipment as per the terms and
conditions of the contract to collect payment.
The checklist prepared by the management is extremely useful in lining and charting out all the
key activities related to the process and increasing the profit and mitigating the risk associated
with ocean freight and safe delivery of the shipment.
Evaluation of different financial institutions for insurance and letter of credit:
Letter of credit is a very important document which ensure safe payment of the products
and the cargo. A number of formalities are required for obtaining letter of credit from any
financial instituion (Esty and Fisher, 2019). A collateral is required to be furnished by the trader
equivalent to the amount of letter of credit. Various charges such as fees and surcharges are
levied by the banks for issuing letter of credit depending on the period in terms of days and the
amount of letter of credit. The management of the Johnson Ltd. generally uses the services of
HSBC Bank ltd. for obtaining letter of credit and the charges levied by the bank are somewhere
close to 0.89% on an average. Deciding the insurance depends on the factors such as premium,
procedure of claims and provisions and events which are covered under the insurance.
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Evaluation of different institutions is necessary for making the best decision related to smooth
payments.
Evaluation of different shipping options and carriers:
Generally, the decision-making by exporters and traders related to the selection of shipping
carrier is influenced by two major factors which are price-based factors and service-based
factors. Price-based factors influencing the decision of the shippers are elements such as freight
rate, level and stability of freight rate, rate to different routes, flexibility in rates etcetera.
Service-based factors includes elements such as the shipment handling ability of the carrier,
capacity of the carrier, network and reliability of the carrier, attributes of customer service,
corporote social responisbility elements and the ability to provide other ancilliary services also as
and when required by the company (Brodie, 2014). Some of the most used carrier companies by
the management of Johnson Ltd. includes Spencer, C.F. & Company Ltd, NHK International,
Hapag-Lloyd ltd. etcetera. For determining the carrier company, the management of Johnson
Ltd. follows a systematic and logical approach. The company starts with identification of all the
companies which deal with ocean frieght to the country the company wishes to export to.
Identification in the initial stage helps the company to list out all the alternatives which are
available for the company in a defined manner and this list can also be helpful in emergency
requirements of the company. After the initial screening process, the company asks each of the
carrier company to deliver price quotations according to the shipping requirements of the
company. After that, company decides to assign weigth to each of the factor which influences the
decision of the management to choose a carrier company such as freight rates, quality of service,
ancilliary service etcetera. The management then finally takes the decision on the basis of the
results of these findings, quality of customer service is determined with the help of consumer
reviews and ratings. A few of the sample quotations received by the company are as follows:
Price Quotation of Hapag-Llyod (Southampton-Port to Newark–Elizabeth Marine
Terminal) (CONT. 40’*9’6” HIGH CUBE CONT.):
Particular Amount (USD)
Ocean Freigth Charges $550
Terminal Handling Charges $85
Seal Charges $7.85
Mandatory User Charges $28.5
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Total charges: $671.35
Price Quotation of Spencer, C.F. & Company Ltd. (Southampton-Port to Newark–
Elizabeth Marine Terminal) (CONT. 40’*9’6” HIGH CUBE CONT.):
Particular Amount (USD)
Ocean Freigth Charges $540
Terminal Handling Charges $88
Seal Charges $9.85
Mandatory User Charges $26.75
Total charges: $664.6
In the above example, theere is not much difference in the price and freight charges of the
two carrier companies so the decision of the management would be influenced by the quality of
service of the management and safety guidelines and provisions of both the companies. The final
decision on which company to go forward with also depends to a great deal on the context of the
business situation (Birla, 2012). At times, a slight difference in the freight rate might become the
deciding factor when the goods which are being shipped are of good durability and there is no
deadline for the order to be processed and on the other hand, many a times, even a huge
difference in the freight rate might not affect the decision of the management to process the order
with a carrier company because of the quality of the service being delivered by them and the
fragility of the consignment being shipped.
CONCLUSION
It can be concluded from the above case study of Johnson Ltd. that the shipping process of
any organisation includes a compliance with a lot of provisions and laws of both the countries
where the product is being shipped and from the country which exports. Many documents such
as letter of credit and bill of lading are essential documents which ensures that the shipping
process is free from any lags or delays due to operational inefficiency (Baughen, 2012). A
checklist prepared by the management of the Johnson Ltd. helps in ensuring that all the acitvities
related to shipping are being effectively carried out. At last it can be concluded that evaluation of
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different carriers and financial institutions is being done by the company to take the best decision
in an informed manner.
REFERENCES
Books and Journals
Baughen, S., 2012. Shipping law. Routledge.
Birla, M., 2012. FedEx Delivers: How the World's Leading Shipping Company Keeps Innovating
and Outperforming the Competition. John Wiley & Sons.
Brodie, P., 2014. Commercial shipping handbook. CRC Press.
Esty, B. and Fisher, D., 2019. Hapag-Lloyd AG: Complying with IMO 2020. HBS Case. (720-
713).
Jensen, T., 2017. Shipping Information Pipeline: An Information Infrastructure to Improve
International Containerized Shipping. Frederiksberg: Copenhagen Business School
(CBS).
Lorenzon, F., 2014. International trade and shipping documents. In Maritime Law (pp. 173-196).
Informa Law from Routledge.
McKenna, M., Bruns, N. and Parochelli, J., Diamond Assets LLC, 2019. Shipping box. U.S.
Patent Application 29/597,849.
Norbury, M., 2018. The referee and the shipping container. Taxation in Australia. 52(11). p.640.
Svensson, E., 2014. Sulphur Regulations for Shipping–Why a Regional Approach?: Scientific
and Economic Arguments in IMO Documents 1988-1997. Chalmers University of
Technology.
Xu, J., 2016. A Protective Method for Vessel Owners Following the Collapse of OW Bunker:
The Second Circuit Approval of Interpleader Actions in Hapag-Lloyd Aktiengesellschaft
v. US Oil Trading. J. Mar. L. & Com.. 47. p.389.
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